Finance

Want a million dollars in the bank by age 50? Here’s how to get there

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You can reach this number if you save and invest consistently.


Key points

  • To have a million dollars by age 50, you’ll need to invest anywhere from about $500 to $5,000 a month, depending on your age when you start.
  • The most effective way to reach a million dollars is to invest heavily in the stock market.
  • Also, invest in tax-advantaged retirement accounts to save on taxes.

Reaching a million dollars in savings is a popular financial goal. To make it even more ambitious, you could aim to have that much by the time you’re 50. If you can do that, you’ll be in a comfortable financial position and may even be able to retire early.

Although this might be difficult, especially if you do not have a high income, it is more realistic than you think. This quick guide will show you exactly how to have a million dollars in the bank by age 50. We’ll start with how much you need to save per month, then look at some wealth-building strategies to grow your money.

How much do you need to save to have a million dollars by age 50?

The amount you need to save to have a million dollars by age 50 depends on several factors. The most important thing is your age. When you start investing earlier, your money has more time to grow through compound interest. Compound interest is when you earn interest on top of the interest you’ve already earned.

Your annual return also makes a big difference. Earning 10% a year in the stock market will take you much further than earning 2% or 3% in your bank account. And 10% per year is the average return on the stock market for the last 50 years.

Let’s say you invest in stocks and average an annual return of 10%. Starting from scratch, here’s how much you should be saving per month depending on how old you are:

  • 20 years old: $507 per month
  • 25 years: $847 per month
  • 30 years old: $1,455 per month
  • 35 years: $2,623 per month
  • 40 years: $5,229 per month

As you can see, you don’t have to invest nearly as much when you start young. That’s the power of compound interest.

These are all still lofty targets. Most 20-year-olds, for example, probably won’t be able to set aside $507 a month. What’s important is to invest as much as you can, as early as you can, so your money has more time to grow. Next, let’s look at some strategies for maximizing the growth of your money.

Contribute to tax-advantaged retirement accounts

Retirement accounts allow you to save and invest money while saving on taxes. There are several popular types of retirement accounts:

A 401(k) is an employer-sponsored retirement plan. You make contributions directly from your salary, up to the annual limit ($22,500 in 2023 for those under 50). Your 401(k) contributions reduce your taxable income, because you don’t pay taxes until you withdraw the funds in retirement. Many employers match contributions up to a certain amount, helping your account balance grow faster.

IRAs are retirement accounts that you open yourself. The annual contribution limit is $6,500 in 2023 for those under 50, and that’s the combined limit for all IRAs you have. Traditional IRAs work like 401(k)s in that contributions reduce your taxable income and you pay taxes when you withdraw. Roth IRAs differ in that contributions do not reduce your taxable income, but retirement withdrawals are tax-free.

One thing to note about retirement accounts is that there are penalties for withdrawals made before age 59 1/2. So you can use these accounts to get to $1 million at 50, but you’ll have to wait to access that money without penalty.

Invest heavily in the stock market

The stock market is widely regarded as one of the most effective ways to create wealth. As mentioned above, the average annual return is around 10%. You are unlikely to find another investment with such a high return and such a long track record of success.

Your retirement accounts, like any individual brokerage accounts you have, will offer different investment options. For the greatest growth potential, you’ll want to have most of your money in stocks. Investing in bonds, on the other hand, is a more conservative option. While bonds work well for preserving wealth, stocks are better for building it.

Pension plans and stockbrokers usually have a lot of assets invested in a large number of stocks. One of the best options is an S&P 500 index fund. This will track the performance of the 500 largest companies on the US stock market. You will get a portfolio with all the biggest US companies in one investment.

All assembly

To summarize, if you want a million dollars by age 50, invest as much as you can afford in stocks. It’s best to start doing this right away, because the younger you are when you start, the less you need to invest per month to reach $1 million.

You can invest your money in retirement accounts, including 401(k)s and IRAs, as well as brokerage accounts. Contribute to retirement accounts first because of the tax savings they offer. If your employer will match your 401(k) contributions, make sure you maximize your employer match, because it’s essentially free money.

If you follow these tips and invest in index funds, you will build wealth. Whether you reach $1 million at 50 will depend on how much you invest and how the market performs. Either way, these are great habits to follow for long-term personal finance success.

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